Energy & Resources

Musk shoots for the roof

Tesla eyes China’s solar market for next big growth opportunity


The renewables trinity: a Tesla car, its Powerwall and solar roof

In the Michael Lewis classic Liar’s Poker there is a memorable line about Lewie Ranieri, the buccaneering head of the mortgage bond department at Salomon Brothers in the 1980s. He’s sure of his gut instinct: his irreverent response to management when asked if it made sense to bet the ranch on a trade was: “Sure, what the fuck, it’s only a ranch.”

Elon Musk has bet the ranch many times over during Tesla’s stellar rise. But the Tesla CEO is highly dismissive of those who want to bet the ranch against him.

Two years ago, Musk tweeted that short-sellers were about to feel “the ‘short burn’ of the century”. It took slightly longer than he anticipated, but Tesla’s share price then quintupled from a low of $178.97 on June 3 last year to a record high of $917.42 as of February 19.

Since then, it has dropped back sharply again, closing at $750 on Wednesday, as coronavirus concerns knocked global equity markets for six.

But underlying the stock price’s more general rise is a renewed faith in Musk after he resolved the Model 3’s production problems and got the company’s Chinese gigafactory off the ground at record speed.

Now he has a new business line in his sights: one that has the potential to transform Tesla’s profitability. On February 10, Musk tweeted about plans to ramp up global sales of Tesla’s Solarglass Roof and Powerwall products. He subsequently announced that China would be a key market.

Investors suddenly woke up to the fact that Tesla has plans to turn into the Apple of the energy business. The company is in the process of creating an ecosystem that will not only bypass fuel service stations but also the traditional electricity suppliers as well.

That future is now a lot closer than many people had imagined, with Tesla’s drivers able to recharge their cars from solar panels on the roofs of their homes (Solarglass) and then either storing the excess energy in Powerwall batteries or selling it to the national grid.

The share prices of a number of Chinese firms have shot up since Musk’s tweet and their gains have been further underpinned by government moves to promote the use of solar energy.

On February 12, the following stocks went limit up: Jiangyin Haida, which supplies components for Tesla’s solar business, plus solar panel producer Shenzhen SC New Energy and solar module equipment assembly specialist, Yingkou Jinchen.

Jiangyin, which has the closest links with Tesla, saw its shares double in value in the space of two weeks. Shenzhen SC New Energy has nearly tripled in price since mid-November as the solar sector returned favour again.

Wang Bohua from the domestic Photovoltaic Industry Association believes that 40GW to 50GW of new solar capacity could be installed in China this year, up from 30GW in 2019. At the top end of the range, this would bring total installed capacity up to 255GW, more than half the global total.

At that point, capacity would also be 2.5 times more than the 105GW target the government established as part of its 13th Five-Year Plan. (After suppliers overshot the target by 50% as early as 2018, the government decided to cut subsidies. This knocked new capacity additions, which were down 9GW in 2019 compared to 2018.)

Last May, the government also introduced a new market-based bidding process for solar projects. But its desire to prioritise solar energy remains clear. Companies in the sector are also benefiting because solar farms are becoming more profitable to run following an 80%-plus drop in panel and lithium-ion battery prices over the past decade. There’s plenty of potential for the market to grow too – the solar sector met 2.6% of China’s energy demand in 2018, compared to 5.9% in Japan and 7.5% in Germany.

It is an obvious opportunity that Tesla wants to tap into as well, hoping that Chinese consumers will start to see a Solarglass roof as the same kind of status symbol as a Model 3 or Model X car.

Tesla’s latest iteration of the Solarglass design combines the solar panel and roof tile into one. US broker Piper Sandler reckons that this significantly reduces production and installation costs. Based on revenues of $33,950 per 2,000 square foot roof, it forecasts that Tesla’s solar and energy capture business could be worth $80 billion a year within a decade, a major increase on the $1.6 billion it booked in 2019 (6% of overall revenues).

Musk’s star is certainly back in the ascendant. However, the same does not appear to be true for a man who was once China’s richest, Li Hejun.

As WiC has previously reported, Li was once known as the ‘sun king’ because he had made his fortune from solar panels. Readers are probably more familiar with the name of his company, Hanergy, which was suspended from the Hong Kong Stock Exchange in 2015, pending an investigation over related party transactions. Its market capitalisation peaked at about $40 billion before a one-day implosion erased almost half of is value, amid questions over how it was reporting revenue and its relationship with its parent company in China.

The investigation dragged on for four years until Hanergy was finally taken privatise in a HK$54.9 billion ($7.04 billion) deal last October ahead of a purported A-share listing.

“Hanergy didn’t make good use of the capital markets and this held back the company’s development,” is how Sina Finance described the case. But PV Magazine wonders what kind of future Hanergy has at all after the Chinese courts recently upheld a creditor action to sell off its major asset, the Jinanqaio hydroelectric power plant. The mood inside the company seems to be febrile too: the magazine reports that three of Hanergy’s employees climbed onto the roof of its Beijing headquarters in December, threatening to jump because they had not been paid for months.

Other reports in the Chinese press detail protests among the company’s 15,000 Chinese staff. Li himself last went public in October when he attributed late payments of salaries to “complex and unpredictable external factors” plus a “mismatch between resources available and the pace of Hanergy’s development”.

Recognising concerns that he might try to flee the country, Li also promised to stay in China and work with the government to resolve the situation. He also highlighted that he handed back his US green card some years ago.

Heading to America isn’t going to be an attractive option, anyway. A group of 300 employees at Hanergy subsidiary Alta Devices has launched a class action lawsuit against the parent company, insisting that Hanergy “is not above the rule of law, and this is not China”. They allege that in “abruptly closing” the Alta plant late last year Hanergy “violated the federal and California WARN Acts, which require at least 60 days written notice of termination where a plant is shut down and/or mass layoffs occur”.

That means that Li Hejun will be heading to the law courts around the same time as Musk, who will be facing off with a group of disgruntled stock market investors next month.

Their litigation relates to Tesla’s $2.6 billion acquisition of solar panel producer and installer, SolarCity, in 2016, alleging that Musk, Solar City’s CEO and major shareholder, misled investors about the liquidity crisis SolarCity was facing.

All of Tesla’s board directors, with the exception of the CEO, have agreed to a $60 million settlement with the litigants, according to court filings. But Musk has a reputation for refusing to back down, as a British diver in Thailand found to his cost when he sued Musk for referring to him as a “pedo guy”. Musk argued that he did not expect the remark to be taken literally and won the defamation case last December. He has retained the same lawyer to fight the SolarCity case.

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